An LLC is similar to a corporation. However, it differs in several ways. A sole proprietorship is owned entirely by one individual. This includes assets, liabilities, profits, and losses. If someone dies, the sole proprietorship becomes part of the estate.
A limited liability company is different because it has members. Each member owns a percentage of the company based on the amount he/she contributed. Members cannot lose money unless they invested in the company. They do not become liable for debts incurred by the company. However, they can still be sued personally.
In order to change from a sole proprietorship to an LLC, you must file articles of organization with the Secretary of State. You must pay a $75 filing fee. Once you complete the process, you can start operating under an LLC.
You can operate under an LLC without paying taxes. Instead, each member pays income tax on his/her share of the company’s profits.
If you want to convert from a sole proprietorship into an LLC, you must wait three months after creating the LLC. During that period, you cannot sell any property or enter into contracts. After three months pass, you can make changes to the company.
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There are several benefits to forming an LLC or sole proprietorship.
An LLC provides protection against bankruptcy. If you are self employed, you must pay income tax on your earnings. You don’t want to lose money because you got sick or injured and couldn’t work. This could happen even if you had insurance. You could end up owing thousands of dollars to the IRS.
An LLC allows you to keep personal assets separate from the businesses. If you start a business and use your home equity, car equity, retirement accounts, etc., you might run into trouble later. Your creditors could try to take those assets away from you. By creating an LLC, you can keep your personal assets safe.
LLCs allow you to avoid paying Federal Employment Taxes. When you file your taxes, you have to report how much you earned during the year. If you earn over $400 per month, you have to pay Social Security and Medicare taxes. These taxes aren’t always easy to calculate. They’re based on your monthly salary and whether you worked overtime.
If you own both personal and professional assets, you might want to consider forming an LLC. You’ll still have to pay taxes on your earnings, but it will help you keep your personal assets safe while protecting your business interests.
A sole proprietorship or partnership doesn’t offer the same protections. If you form one of these entities, you won’t be able to shield your personal assets from creditors. And if you owe the government money, there isn’t a lot you can do about it.
Converting from a Sole Proprietorship to an LLC
If you are thinking about starting a small business, there are several things to consider. One of those things is how much liability protection you will receive. If you operate as a sole proprietorship, you are personally liable for all debts incurred by your business. This includes unpaid taxes, judgments against your business, lawsuits, etc. If you form an LLC, you will still be responsible for paying state and federal income tax, payroll taxes, unemployment taxes, and other employment related costs. However, you won’t be held personally responsible for any debt associated with your business. Another thing to think about is whether you want to incorporate. There are many benefits to incorporating such as limited personal liability, automatic bookkeeping software, and more. On the flip side, you’ll have to deal with corporate paperwork, annual fees, and more.
Starting a business is one of the best ways to make money online. In fact, according to Entrepreneur, 40% of people who start businesses do it because they want to work for themselves rather than a boss. But just like anything else, starting a business takes some planning and preparation. So today we’re sharing step by step instructions on how to start your very own business.
First, let’s talk about why you might want to start a business. Do you love making money? Want to become financially independent? Maybe you want to build a legacy for yourself? Whatever your reason is, it’s important to know that running your own business doesn’t have to be complicated or expensive.
In fact, you don’t even need a lot of money to
Steps to change sole proprietorship to LLC
A sole proprietorship is one of the most common forms of businesses out there. But it doesn’t mean you don’t want to make some changes. There are actually several benefits to converting your business into a limited liability company (LLC). These include tax savings, protection against lawsuits, and better insurance coverage. If you’re ready to take the next step toward greater independence, here’s how to go about doing it.
1. What Is an LLC?
An LLC is a limited liability company. This means that the owners do not personally risk losing money if the business fails. Instead, the assets of the business go into a trust fund, and the owners of the company are protected. You can form an LLC in most states without having to file taxes.
2. Pros & Cons of Sole Proprietorship vs. LLC
Pros of a sole proprietorship:
• You don’t pay corporate tax.
Cons of a sole proprietorship :
1. Check your business name
Your business name must comply with local regulations. In some cases, it may even require approval from the government. If you’re thinking of starting a new business, check your state’s requirements and make sure your business name complies with those rules.
2. Don’t infringe on another company’s trademark
If you’re planning to start a new business, avoid picking a name that could cause confusion among customers. For example, don’t call your business “The New York Times.” You might think it sounds like the newspaper, but chances are high that people won’t know what you mean. Instead, pick something unique that doesn’t sound too similar to other businesses’ trademarks.
3. Find out if your business name is already taken
You can do this online. Just type your business name into the US Patent and Trademark Office’s search bar. If you see your name listed under “registered marks,” you’ve found a potential problem. This usually happens because someone else registered the same name. To avoid problems, change your business name immediately.
4. Get legal advice
Don’t try to figure out whether your business name violates someone’s trademark on your own. A lawyer can help you determine whether your name is legally safe to use.
2. File articles of organization
To form an LLC, you must file Articles of Organization with the Secretary of State’s office in the state where you are located. You can do this online, but it’s best to hire a lawyer to handle this process. A filing fee varies based on the type of entity you choose and where you reside. Some states charge no filing fee; others charge $100-$500. In addition, most states require a registered agent—a person who accepts legal documents on behalf of the company. If you don’t have one already, you’ll need to find someone who will accept service of legal documents on your behalf.
3. Write an LLC operating agreement
An operating agreement is one of the most important legal documents you’ll write for your small business. You can use it to formalize decisions about how the business operates, including how much each owner gets paid, how profits are split, whether employees are allowed to work without pay, and how disputes are resolved.
If you’re starting a new business, ask yourself some questions about how you want things to run. Do you want to operate under a single ownership structure where everyone shares equally in the profits and losses? Or do you want to keep things separate, with different people owning different pieces of the business? If you want to keep everything separate, you might decide to form an LLC.
4. Announce your LLC
If you are starting a business, there are several things you need to do to protect yourself legally. You need to register your business name with your state government; file articles of incorporation or organization with your Secretary of State; pay taxes; open an account with a bank; and obtain insurance. But what about registering your business name with the federal government? Suppose you want to operate under the protection of the U.S. Government. In that case, it is important to know that filing an application for a Federal Employer Identification Number (FEIN) with the Internal Revenue Service (IRS) is one of those things you must do. In addition, some states require businesses to obtain a registration number, too.
A FEIN is a unique identification number given to employers by the IRS. To qualify for a FEIN, you must be incorporated or organized as a corporation, limited liability company (LLC), partnership, trust, estate, cooperative, association, joint venture, or governmental entity. A FEIN verifies employment eligibility, withholds income tax, and collects unemployment insurance contributions. An employer must apply for a FEIN within 30 days of beginning work for the employer.
The process of obtaining a FEIN varies depending on whether you are incorporated or operating as an unincorporated entity. For corporations, the steps include:
1. Obtain a copy of Form SS-4 Application for Employer Identification Number from the IRS.
2. Complete the form and submit it to the IRS.
3. Wait approximately six weeks for approval.
4. Pay $100 fee to the IRS.Apply for a new bank account
If you want to start a small business, opening a separate business checking account is important. This way, you won’t have access to your personal funds. You’ll also be able to easily track how much money goes where. Plus, you’ll be able to file taxes separately. If you don’t do this, you could end up owing tax penalties.
You might think that opening a business account is easy. But there are lots of things to consider, such as whether you want to use a local bank or one based out of state. Also, you’ll need to decide what type of account you want. There are several types of business checking accounts, including demand deposit, savings, and even credit union accounts. Each option offers different benefits, so take some time to compare options before making a decision.
6. Apply for an EIN
If you are starting a new business, applying for an Employer Identification Number (EIN) is one of the most important steps you can take. This number allows you to file tax returns as a corporation or form a limited liability company (LLC). If you already have an LLC, you do not need to apply for another EIN. You can use the same EIN for both entities.
The IRS requires businesses to obtain an EIN regardless of whether or not they plan to hire employees, pay wages, or collect sales tax.
7. Apply for business licenses and permits
The process of opening a business can seem daunting. You want to make sure everything goes smoothly, but there are many things to consider. One thing you might not think about is obtaining business licenses and permits. In some cases, applying for a license or permit can be easier than opening a shop. For example, you might already have a federal license or permit. If you do, you don’t necessarily need to go through the same application process again. However, depending on where you plan to operate, you might still need to apply for a business license or permit. Here are seven steps you can take to ensure you’re prepared for the start of your business.
1. Determine whether you need a seller’s license
Every state requires sellers to register with the state department of revenue. This is called a seller’s registration. Some states require sellers to pay fees for each item sold. Other states simply ask that sellers provide information about themselves and their businesses.
You’ll likely need a seller’s license if you sell items online. Most states allow online sales without requiring a separate seller’s license. But if you intend to sell products offline, you’ll need to register with the state.
2. Find out if you need a seller‘s permit
Some states require sellers to obtain a seller‘s license and a seller‘s certificate. These types of licenses are similar to a seller‘s registration because they require sellers to provide basic information about themselves and their business. They differ in that they cover specific activities within a certain geographic area.
Frequently Asked Questions
How should I form my business entity?
The Secretary of State’s office does not provide legal advice regarding how to form a business entity. However, we do offer assistance in choosing the proper type of business entity based upon your needs. If you are considering forming a corporation, limited liability companies or partnerships, please contact our office. We will review your situation and determine whether it makes sense to use one of those types of entities.
Who is required to register with the Ohio Secretary of State?
Any business entity, domestic or international, planning to transact business in Ohio, using a name different than their own personal name must register with the Office of the Secretary of State. This includes sole proprietorship, general partnership, limited liability companies, corporations, trusts, etc. If a business entity does not wish to register their business, it is not necessary to register a trade name. However, if the business entity wishes to operate under a fictitious name, such as “Bob Smith’s Automotive,” then the business entity must register the name with our office.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.